A flurry of reports yesterday signaled worsening conditions for the nation's already distressed housing market.
The supply of unsold U.S. homes ballooned to an 18-year high in August as demand for existing homes fell to a five-year low, according to a report by the National Association of Realtors. The Washington-based trade group blamed the onset of the global credit crisis last month for the drop in sales.
"The unusual disruptions in the mortgage market resulted in a fairly high number of postponed or canceled sales," said Lawrence Yun, the group's chief economist.
A separate report yesterday indicated that home prices were falling at an increasing rate. The closely watched S&P;/Case-Shiller home prices index, which tracks results in metropolitan areas and is considered a leading measure of U.S. single-family home prices, showed an annual decline of 4.5 percent for the 12 months that ended in July, representing the biggest drop since 1991.
Meanwhile, worries about jobs and the economy flared in September, driving a key barometer of consumer sentiment to its lowest level in nearly two years, a private research group said.
The New York-based Conference Board said its Consumer Confidence Index fell to 99.8, an almost 6-point drop from the revised 105.6 in August. The reading was below the 104.5 that analysts had expected.
It marked its lowest level since a 98.3 reading in November 2005, when gas and oil prices soared after hurricanes Katrina and Rita devastated the Gulf Coast.
The index was based at 100 in 1985.
Home sales are expected to continue their descent, further weighing down prices, as the effects of the credit crisis continue to play out, analysts said. Mortgage rates rose in the past month, and lenders have tightened their standards for qualifying borrowers, affecting the ability of the most creditworthy consumers to obtain loans.
"August's sales do not reflect the full impact of the credit crunch, which hit financial markets in midmonth, since most sales were financed with loans approved weeks beforehand," said Patrick Newport, an economist with research firm Global Insight.
What's more, the supply of unsold homes is expected to grow. In August, there were 4.58 million houses available for sale, a supply that would take 10 months to sell if no additional units came on the market. But that's unlikely, in part because more and more homeowners who face onerous monthly payments on their adjustable-rate mortgages, or ARMs, will put their homes up for sale or fall into foreclosure.
"Unfortunately, we think inventory is likely to rise even higher in the coming months as the sales pace slows further and upcoming ARM resets add to the inventory," said Daniel Oppenheim, a housing analyst with Banc of America Securities.
Adding to the nation's inventory woes are homebuilders, which have their own supply of newly built houses to unload. Despite the use of deep discounts and incentives to woo buyers, Lennar Corp., the nation's largest builder by revenue, reported yesterday a worse-than-expected third-quarter loss.
"Heavy discounting by builders, and now the existing-home market as well, has continued to drive pricing downward," chief executive Stuart Miller said.
The Miami-based builder took another huge write-down on its land holdings and said it would continue to trim its work force to control costs.
Lennar reported a net loss of $513.9 million in the three months that ended Aug. 31, far worse than analysts expected, after having earned $206.7 million in the year-earlier period. Revenue fell 44 percent.
"Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself, creating higher cancellation rates," Miller said.
In August, existing-home sales fell 4.3 percent to an annual rate of 5.50 million units, the Realtors trade group said. That was down from 5.75 million in July and a 13 percent drop from the pace of sales in August 2006.
"The good news is that the housing market did not collapse in August. Sales took a hit, and inventory increased, but houses, nonetheless, sold," economist Newport said. "The bad news is that the worst may be just ahead."
Annette Haddad writes for the Los Angeles Times. The Associated Press contributed to this article.